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September 17, 2020
Recent Federal Court Decision Favors Class Action Defendants

Recent Federal Court Decision Favors Class Action Defendants

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Due Process Review Awarded for Employers Facing Fair Labor Standards Act Litigation

Employers in the energy sector in general, are unique under the law for industry professionals, as they’re typically limited to wage and hour litigation governed by the provisions of the Fair Labor Standards Act (FLSA). The majority of FLSA cases seek class action status or collective classification, while other FLSA litigation is initiated by individuals seeking damages. As we’re aware, litigation demands can easily allow current and even previous employees to opt into class action suits and seek collective damages against employers in the energy, oil and gas industry. And the looming financial burden of class action or collective litigation directed against these employers can often consume a valuable amount of time, money and resources to defend. When the level of inconvenience becomes intolerable, Defendants often have no other option but to accept a rushed settlement, negotiated on unfavorable terms for the employer.

But a new federal court decision, handed down March 27, alters the legal maneuvering of unreasonable Plaintiff demands by counter-balancing the class action Defendants’ right to a due process review. This decision was awarded during litigation in a recent FLSA case and potentially includes wide-ranging implications for Defendants facing future class action suits.

In Laney et al v. Clements Fluids, Inc et al (6:18-cv-00497-JCB-KNM), a class action case pending in the United States District Court for the Eastern District of Texas, Tyler Division, the Court recently considered novel arguments that the Defendants would be summarily deprived of their due process rights, if the Court declined to timely consider merit-based arguments that the four individuals pursuing the litigation and seeking class action or collective designation were without any viable claims against Clements Fluids, thereby negating their standing, which is critical to their ability to proceed as part of a class action. The Court determined that a pretrial “fishing expedition” was improper, essentially declining to approve the class action status of the Plaintiffs.

The court’s opinion reasons that employers, in this case future class action Defendants, should be awarded due process rights to merit-based claims, thereby withstanding court-sanctioned production and distribution of protected and privileged information. The decision potentially undercuts the breadth, scope and relevance of Plaintiff class action certification demands for proprietary information in the pursuit of class action litigation. Previously, Plaintiffs’ could make unlimited demands for valuable and sensitive class action-related information from Defendants, which most employers in the oil and gas industry world would—and should—consider proprietary. These open-ended Plaintiff requests will now be subjected to a heretofore unrecognized and fundamental due process review as to their relevance, burden and importance to class action claims. Thus the playing field now becomes level, with the Defendants’ interests in keeping their proprietary information shielded from unreasonable class action litigation demands. Bear in mind, the FLSA applies to all employers. The precedent this decision sets may pave the way for additional levels of protection, not just for employers in the energy sector, but other industries such as manufacturing, technology, restaurants, construction, real estate, hospitality and health care—to name a few.

Before this groundbreaking decision, courts routinely avoided merit-based, preliminary considerations of Plaintiffs seeking class action or collective designations. Without structural limitations, many Plaintiffs’ lawyers aggressively pursued proprietary, and often sensitive, information from putative Defendants during the conditional class certification process. These wide-ranging requests were little more than a thinly disguised “fishing expedition” for information which could subsequently lead to additional litigants and clients. These excessive demands are routinely imposed due to the pretrial disclosure enforced on employer Defendants, typically requiring them to disclose the names and contact information of all employees, including those who no longer work for the company. In addition, many oil and gas employers were also forced to disclose customer lists, sub-contractor employment data, vendor partnerships and other proprietary information to facilitate the discovery of potential claims and class members.

Prior to this ruling, employers—acting as Defendants—lacked any viable objection, defense or remedy to this wholesale court-sanctioned demand for their proprietary, privileged information.  Plaintiffs formerly needed only to show potential relevancy for pre-litigation access to the Defendants’ critical information, typically furnished with only the barest of contractual protective orders.  For the first time, with the new due process review in place, Defendants can now raise substantive objections to handing over valuable and privileged information and directly challenge these class certification attempts.

While the onus and jeopardy of exposure to a business enterprise still remains with employers seeking to defend the claims of individuals pursuing class action litigation, this federal court decision represents a monumental shift in judicial review of class action and class certification. The opinion provides major new precedent for employers seeking to avoid class certification in the early discovery phase of litigation. Internal legal departments and outside firms representing employers in all sectors of the energy, oil and gas industry should be made aware they now have the ability to cite a vital new precedent when seeking to avoid the oppressive legal expense and significance of a class action or collective classification. For oil and gas employers representing the wide and diverse energy sector of our economy, this new ruling truly levels the playing field, becoming an effective tool for reducing the risk of a premature, unwarranted and costly out-of-court settlement.

Author Profile
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Dan Pipitone is a shareholder and leader in the Labor & Employment practice group in the law firm of Munsch Hardt. His practice includes the representation of both individuals and companies charged with violations of the Fair Labor Standards Act (FLSA) and his team successfully persuaded the court to hand down the landmark decision in this column, as well as a 2014 landmark decision in which he persuaded the court to established independent contract exemption. He can be reached at dpipitone@munsch.com.

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Amber Karns is an associate in the Labor & Employment practice group in the law firm of Munsch Hardt. She has extensive experience representing clients in Fair Labor Standards Act (FLSA) collective actions and helped persuade the court to hand down the decision in this column. She can be reached at akarns@munsch.com.  

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